So, you’ve made a decision to change your life drastically and become a trader. However, be prepared – all novices in FX trading make the same common mistake in the very beginning. Whether they are too optimistic and believe the can become millionaires in a few days or they tend to be quite pessimistic, thinking that only super-smart people can work as FX traders. As usual, the truth is somewhere in the middle.
First and foremost, everyone, literally everyone can become a trader and have a prosperous career. The second point, you need to learn many things. You can’t skip the process of education since there is no magic method that will make the profits while you are doing nothing. Just like with any business job, new FX traders have to work a lot to achieve the goal of almost passive and stable income. Luckily, there are automatic expert advisors and professional brokers who can help to avoid the major bumps on your long road to a prosperous FX trading career.
With the help of EAs and brokers, after multiple tests and trials, you may pick a method that works for you.
Important advice to all novices: there are working and free (!) trading strategies. Do not trust the scammers who claim to have the one and only working strategy that you have to buy. Trustworthy brokers will never sell you a win-win strategy because they understand there is no such thing. On the contrary, they will offer you calculate all risks, test every new method of trading, recommend the solid indicators for analysis and effective trading platforms. For instance, the broker may offer a plan for improving your trading conditions. Stick to such companies, they understand how FX trading works.
What is a Forex trading strategy?
Every prosperous trader has a strategy he or she follows. Do not believe the people who say that they trade purely “on their gut feeling”. No, that is not how it works. Even the simplest strategy is built on the FX basics – support and resistance levels, i.e. whether you buy or sell a currency pair.
Some strategies are based on fundamental analysis (news, economic events) or technical analysis (the monitor of indicators and charts on trading platforms). Many experienced traders have a few strategies based on the combo of technical or fundamental factors. Some traders go even further and try to develop their strategies. However, novices should stick to the working and free methods that were already tested by thousands of traders before them.
Key basics of any FX strategy
Almost all strategies can be roughly divided into 2 categories:
- Manual – when a trader sits in front of his monitor, check the trading signals and interpret them to understand whether he should buy or sell. Then he waits for the opportune times to trade;
- Automated – a trader uses or develop a special algorithm (called expert advisor or trading robot) that automatically finds the appropriate trading signals and waits for the time to execute them without the trader’s assistance. In such a way, human emotion is completely out of the process. Many novices choose automated strategies.
When waiting for the appropriate time, a trader decides whether to buy (support) or sell (resist). Placing the right areas – support or resistance – is the first skill you need to master as an investor. In short, it is easier than you may think.
Bear in mind that people who trade on support (buy) areas are called bulls (buyers). Respectively, people who trade on the resistance (sell) areas are called bears (sellers).
What components make a good FX strategy?
There are so many FX trading approaches to pick from, but all of them consist of the same basic components traders need to take into account:
- Choose the currency pair or pairs for trading. It is impossible to trade on all pairs at once. 85% of FX trades occur on only 7 pairs: EUR/USD, USD/JPY, GBP/USD, AUD/USD, NZD/USD, USD/CAD, USD/CHF;
- Determine the order size a trader is willing to risk;
- Develop the rules for entry points – a trader must choose a long or short position;
- Develop the rules for exit points – when to get out of a losing order;
- Trading the resistance or support areas;
- Manual or automatic trading with the help of programs like MT4 or MT5 (MetaTrader);
Now when you know the basics of any FX trading approach, it is a high time to check top 5 free FX strategies that actually work.
5 free FX strategies for novices and experts
1. Price action method: playing the support/resistance areas
You pick whether to buy or sell currency pairs, become a bull or bear. However, there are the FX traders who manage to trade on the analysis of the bulls and bears’ behavior. It is price action trade. Sometimes traders call it the naked trading because it happens without the use of any indicators.
When you choose this method, you have to analyze the market’s behavior of bears and bulls. If your analysis shows that bulls control the market, you buy (long orders). If the bears control the market, you sell (short).
- If you need to learn to trade without the use of indicators and “feel” the market, price action trading is the best way to do this;
- A good method for traders who appreciate their time;
- It is simpler than most strategies;
- Professional guidance is obligatory;
- The proper knowledge is required to be prosperous;
- It’s considered the advanced form of trading among beginners;
2. Position trade: for those who can wait
If you intend to stick to long-term trading, then this method will be good for you. Position traders usually trade on the daily or even weekly timeframes. Followers of this method usually rely on NFP, retail sales, GDP and fundamental analysis in general. Technical analysis is applied only when you enter the market.
- Not time-consuming;
- Less stress;
- The chances to get the profit is 1 to 5;
- You ought to use the fundamental analysis – follow the news and events;
- Stop loss is wide so you need a huge fund;
- Low quantity of trades so the profit is relatively smaller;
3. Swing trade: the art of holding trades
This medium-term method allows traders to hold the orders for weeks and days. People trade on 1-hour or 4-hour timeframes. Swing traders need to capture “a single movement” that is called a swing. Swing traders have to learn the technical concept of resistance and support, moving average and candlestick patterns.
- It is possible to have a full-time job and trade at the same time;
- You can make the profits annually;
- The big trends will pass by;
- Overnight risks are possible;
4. Day trade: when you need quick money
This short-term method is very fast. People trade on 5-minute or 15-minute timeframes. The day trader’s major problem is the intraday volatility. Traders should play when it is the most volatile session of the picked instruments. Fundamental analysis is irrelevant as well as the long-term trends. A trader just defines a bias of the day (long/short position) and trades in that way for an entire session.
- Making profits is easy on most days;
- Overnight risks are absent because all trades are closed within a day;
- A lot of stress because you have to watch the market all the time;
- Huge losses are possible when a trader has a huge slippage;
- Opportunity costs are huge;
5. Transition method: trading on the lower timeframes
Traders enter the FX market on the low timeframes when the target price increases or use stop loss on the high timeframe. Always exit on the higher timeframe.
- The chance to get the profit (the ratio is 1 to 10);
- The risks of losing money are lower when entering the trade on the low timeframe;
- Only a few traders can become regular winners;
- A trader must fully understand the rules of many timeframes;
A real example of an adapted FX method
Most traders conform an already existing method. One of AMarkets clients, let’s call him Jack, shared his method of trading he was using a year ago. He was calculating the exponential moving averages for the pair USD/EUR using the offered indicators. This is how he spotted the trends for this specific pair. Then he was trading only this pair at appropriate times in the next few days to gain the profit.
Is scalping method good for every FX trader?
Fact: 90% of FX trades are based on the method of speculative method. Scalping is the foundation of day trading in the FX markets. It is quite logical because FX traders use the immediate exchange of currencies. Back in the 1980s and 1990s, traders could not trade on the exchange rates of currency pairs; this method was available only for banks and institutions with $60 million liquid funds or more. However, nowadays can become a day trader and use a scalping method.
Experienced traders do not recommend novices to use scalping methods. Mainly because scalping is extremely time-consuming. Not every trader can actually make money by scalping. But you can’t deny the fact that scalping actually works when you can use it. It is a reliable trading method, but you have to be ready trading in and out of the FX markers a few times per day. This is a bit frenetic but the profit is guaranteed. However, steady profit margins are quite small.
There is only one rule – the more you scalp throughout a day the better. You can ask FX brokers how to scalp effectively. For example, AMarkets gives chance to hop on the scalping train from the first day.
We didn’t include scalping to top 5 of trading strategies because you have to understand and “feel” the market to become a savvy scalper. Besides, retail traders should not fully rely on scalping.
Other popular FX trading strategies in 2019
- Bladerunner. Good for any pairs and timeframes. It belongs to the category of price action strategies;
- Daily Fibonacci Pivot. Includes both Fibonacci extensions and retracements;
- Bolly Band Bounce. It is based on the combo with confirming signals;
- Pop ‘n’ Stop. When investors are chasing the price when it rises;
- Long-term breakout. Investors buy breakouts on the given chart (new highs) and then sell the new lows;
- The Four-Week Rule is called one of the simplest mechanical trading strategies. Investors buy when there is a new 4-week calendar high and then sell when there is a new 4-week calendar low. They maintain the position in the FX market;
- Overbought Oversold is a short-term strategy that derives from swing trading.
If you are interested in these new strategies, you may ask your broker about them. Brokers like AMarkets can provide personal assistance for investors who don’t know yet how to use the indicators and read trading charts.
When to replace FX strategy?
Many novices ask when there is the most opportune time to change their method. Because the FX markets are very volatile. The strategy that was working for you a few months ago may not be good nowadays. Especially, when the ratio of wins/losses looks bad for your balance.
Prior to changing your game plan for good, read our checklist that gives hints when you actually needs to do this:
- If the market conditions changed or evolved. The market trends change every few days, months or weeks, depending on the picked currency pair;
- Full comprehension is required. If you don’t fully comprehend how the chosen method works, expect the losses. Learn the rules before trying any FX strategy;
Important advice to novices: alter your method every 3-4 months (unless you lose money all the time). Diversify your investment portfolio and trade in different ways until finding the most suitable strategy.
Final advice instead of a conclusion
There are literally hundreds of FX strategies. However, not every strategy can be recommended to everyone. In a nutshell, each investor must choose its way for trading. Beginners have to understand that FX trading is a process of trials, tests, and errors. Choose the professional guidance (whether automatic or manual), experiment and diversify your investments. Eventually, you’ll pick the most convenient trading method that matches your requirements.